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Bharti Airtel : Legal Advice Results In Financial Impact

Supreme Court ordered the telecom companies to the pay the AGR difference along with penalty and interest to the Government within three months from the order. This total amount comes to Rs.92,000 cr with highest amount to be paid by Vodafone Idea of Rs. 28,309 cr and Bharti Airtel of Rs.21,682 cr.

Bharti Airtel today as has announced that the company postponed release of Q2FY20 results to 14th November as it needs more clarity from DoT on the adverse outcome of the case.

As the case has been a old case Investors were confident that the company with such accounting policies would provide for such adverse outcomes.

If we see financials in detail the company had done as expected and provided Rs. 20,522cr until December 2018 for the period FY 2008 to FY 2019. But due to TDSAT in 2015 had pronounced order against DoT demands and the Government had approached Supreme Court in 2016 against this order.

In March 2019 , company due to recent judgement by TDSAT in Unified License and external legal opinion the AGR provisioning was to be taken as contingency liability. This decision resulted in reversal of all the amount provided for AGR payments in December 2018 & March 2019.

Now that the Supreme Court Order has come against the company the said amount of Rs. 21,682cr it would have to provide and charge the same amount through its P&L for FY 2020 other than the payment of the same that is equal to one year Operating Cashflow.

According to us the big mistake done by the company was reversal of the provision before the verdict of Supreme Court came and that also on the basis of a legal opinion. This would now mean the company has to provide the same amount either in Q2FY20 or Q3FY20 results which will result in heavy loss and net worth erosion on already stressed balance sheet.

We have a SELL rating on the company.

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